The Deal: Earlier this year, CEE Legal Matters reported that Clifford Chance Prague had advised CTP, an industrial developer in the CEE region, on a EUR 1.9 billion underwriting package agreement with Erste Group Bank AG; Ceska Sporitelna a.s.; Societe Generale S.A. and Komercni Banka a.s.; and UniCredit S.p.A. and UniCredit Bank Czech Republic and Slovakia a.s. White & Case advised the lenders on the agreement, which covered CTP’s Czech industrial portfolio consisting of over 200 buildings and covering 2.7 million square meters of industrial space.
- Counsel for CTP: Milos Felgr and Emil Holub, Partners, Clifford Chance
CEELM: How did you and Clifford Chance become involved in this matter? Why and when and by whom were you selected as external counsel initially?
Milos: We had experience with CTP historically but in recent years before the transaction we had not done much work for the company as there often had been a cheaper offer for more routine real estate financing. Last summer we were contacted by CTP Group CFO Richard Wilkinson with a request for proposal. Based on the pitching process and face-to-face meetings, we were selected by CTP as their advisor.
CEELM: What, exactly, was the initial mandate when you were first retained by CTP for this project?
Milos: We were mandated to assist with structuring and advice on a multi-layer refinancing of the Czech part of the CTP Group consisting of more than forty companies.
CEELM: Who were the members of your team, and what were their individual responsibilities?
Milos: I was in charge of the overall coordination of the Clifford Chance team. Senior Associate Marian Husar focused on the senior finance documents. Associate Dominik Vojta supported Marian with respect to the finance documents and worked on all other transactional aspects. Associate Jan Strnad focused on the sections related to corporate changes and on corporate aspects relating to the transaction.
Last but not least, Real Estate Partner Emil Holub, supported by Senior Associate Milan Rakosnik, was in charge of coordinating the real estate aspects of our mandate and was critical in helping to implement the material publicity concept in the due diligence exercise and its acceptance by the lending institutions.
CEELM: Please describe the final agreement in as much detail as possible: How was it structured, why was it structured in that way, and what was your role in helping it get there?
Milos: The final structure of the financing was an LMA-based set of documents consisting primarily of the senior syndicated facility agreement with investment and development facilities, the intercreditor agreement, and a significant number of security documents and other ancillary documents such as hedging agreements.
The documentation had many innovative aspects and is ready for other layers of financing. For example, it complies with the requirements for Pfandbrief eligibility. It was quite a complex process to achieve this given that the concept of Pfandbrief is not known to Czech law and, as far as I am aware, has never been used in the Czech Republic in the context of a financing anywhere near as complex as this transaction. We and our colleagues at White & Case spent a significant amount of time finding and refining a workable solution to make the documentation Pfandbrief eligible without imposing unnecessary administrative or legal limitations on CTP or non-Pfandbrief lenders. In the end, all parties that were involved – the client, the arrangers, and the syndicate lenders – benefit from a flexible financing structure that is acceptable to a large number of various types of lending institutions.
CEELM: What was the most challenging or frustrating part of the process?
Milos: The most challenging was clearly the size and complexity of the transaction including related due diligence, especially with respect to the title. The key for the due diligence was to use all available legal concepts protecting title to real estate and so limit the scope and depth of the review exercise which had to be undertaken by counsel to the lenders.
Emil: We helped the lending institutions to accept only limited title due diligence based on the principle of newly introduced reliance on the records of the Czech Cadastral Register in relation to certain historical title transactions. We have, among others, contacted and coordinated leading experts from the academic and legislative sectors and other leading law firms to obtain confirmatory expert opinions supporting our view on the principle of material publicity.
And thus we created in essence something which creates a legal revolution and has the potential to establish a new market standard and which completely changes the landscape of the real estate legal framework in the Czech Republic.
As a result, the review of title was much shorter and cheaper for the client and for secured lending generally as the debt was secured by the mortgages created with reliance on the so-called “principle of material publicity.” Although this principle has been in place since the beginning of 2014, it came into full practical effect only in 2018, and, in short, it represents a statutory protection of any new right with respect to real estate property created by an owner who has been registered (as owner) in the Cadastral Register for more than three years as long as the beneficiary acts in good faith. This guarantees the rights under the mortgages as newly created rights, despite not remedying potential owner’ title defects with respect to properties, which also gives the financing institutions greater certainty.
Milos: As far as we are aware, this is the very first time that this new concept of material publicity was successfully used in this market. And I consider this to be an excellent achievement as the lenders were able to rely on this principle for almost EUR 2 billion financing.
CEELM: Was there any part of the process that was unusually or unexpectedly easy?
Milos: Definitely cooperation with the client. The clients’ team was very cooperative and professional. Moreover, decisions on the clients’ side were made very quickly.
CEELM: Did the final result match your initial mandate, or did it change somehow from what was initially anticipated?
Milos: The initial mandate was to help with the structuring of the financing and financing as such without outlining the particular structure so yes, the initial mandate, to help the client to achieve refinancing of its Czech portfolio, was achieved. The use of the principle of material publicity was also discussed during the pitching process and my impression is that this was one of the key points for the client.
CEELM: What specific individuals at CTP directed your team’s work, and how did you interact with them?
Milos: The key persons instructing us on behalf of the client were Richard Wilkinson – the Group CFO who was in charge of the overall supervision of the transaction and a key decision maker on the commercial aspects of the transaction; Kveta Vojtova – the Head of M&A and Transaction Legal, the leader of the CTP legal team for this transaction, and our primary client contact for all legal matters; and Zdenek Raus – the CFO for the Czech Republic and Slovakia, our primary contact for finance and development matters.
CEELM: How would you describe the working relationship with White & Case on the deal?
Milos: White & Case is certainly a top firm which is very experienced in similar types of mandates. We had numerous negotiations over the period of nine months on our regular lawyers conference calls followed by slightly less frequent all-party-calls with a couple of large physical meetings towards the end of the transaction. These communication streams were supported by one on one communication among the White & Case and Clifford Chance team members, with leading Partners Jan Linda [from White & Case] and I communicating on a daily – and in peak times almost-hourly – basis.
Emil: I can only support this – the working relationship with White & Case was very professional. Although we often had different views on certain legal aspects, which is usual in the use of similar innovative concepts, we were always able to find the middle ground and come to a solution which worked for both sides of the transaction as well as both law firms. We would like to extend our thanks to them for their cooperation throughout the deal.
CEELM: How would you describe the significance of the deal to the Czech Republic, or to the region?
Milos: As to some extent mentioned before, this deal was extremely interesting and challenging for us, given its scale, legal complexity, and regionality – with its EUR 1.9 billion to refinance more than 40 properties within the CTP Group it was the largest real estate transaction to date in Central and Eastern Europe.
The use of innovative legal solutions (such as reliance on material publicity) and structures enabling multilayer financing and Pfandbrief eligibility in the context of such a large transaction with the corresponding attention and focus of all-involved lending institutions, including major CEE and European banks.
Emil: The complexity of the deal is also uncommon in the region. Especially in regards to the number of participants involved on the lending side, some of which had very limited experience in the Czech market and had to understand and overcome related Czech law issues.
The key factor of which we are especially proud is the use of material publicity. Without overstating the point this has changed the Czech legal landscape – being, to our knowledge, the first time that it has ever used in this market, in particular given the size of the transaction which was nearly 2 billion euros.